How to Do Accounting for Your Construction Business 8 Steps

accounting and bookkeeping for construction companies

Under a unit-price contract, the contractor bills a customer at a fixed price-per-unit rate. Typically, this will be useful if they aren’t able to estimate the unit production for the project with a lot of certainty. Unit-price billing is especially common among heavy-highway and utility construction https://www.scoopbyte.com/the-role-of-real-estate-bookkeeping-services-in-customers-finances/ companies. Financial forecasts are essential if you are looking to borrow money or attract investors. It’s crucial for construction bookkeeping to forecast financials because you’re often dealing with large value contracts and relatively low margins compared to other industries.

This results in double entry of data, errors in the spreadsheets and lost information. When all of this information is handled in a single accounting and job costing system, there is a substantial reduction in errors. Not only does bookkeeping help manage expenses but it allows you to make better business decisions down the line (it’s also very easy!). It includes jobs like recording financial transactions and completing payroll. Other benefits include optimized job costing, streamlined payroll, simpler project management, and better bookkeeping. Furthermore, ComputerEase offers an HR management feature that helps to assign the most suitable employees to specific tasks.

Separate expenses

Modern accounting software can simplify financial management while helping contractors comply with tax laws. Good construction accounting software should automate much of the otherwise laborious work of job costing. Reporting capabilities enable you to track projects and analyze overall business finances in real time, so you can quickly identify problems and take steps to correct them before it’s too late.

Which method of accounting is best for construction company?

Large contractors must use the percentage of completion method, which is a type of accrual accounting. The percentage of completion method involves estimating the finish date of the contract and recognizing income based on the work completed.

Our accounting team offers construction bookkeeping services to contractors whenever needed. Note that we do not mention software as a service as a trend in this market. While we are proponents of the SaaS model, we have not seen credible SaaS accounting software for construction business applications yet. We believe that the SaaS model will eventually make its way into construction accounting, but for now that is not the case. Modern systems will provide better insight into the profitability of individual jobs, and the company as a whole.

Locations & Service Areas

The project-centered nature of the construction business means that construction companies need a different way to keep track of costs and expenses for each job. Job costing is a construction accounting practice that allows construction companies to track costs to particular projects. Project based industries also need to account for potential dry spells in between projects or quick jobs in succession. That means construction companies need to take this into account when determining upfront payments or paying expenses. The length of construction projects make the scheduling and collection of payments a tricky aspect that is very unique to the construction industry. Construction accounting has a steep learning curve, but you can climb it.

accounting and bookkeeping for construction companies

Virtual Construction Assistants have a lot of experience working with a wide range of contractors in the construction industry. Most businesses in the construction industry prefer to use the Percentage-of-completion method . Construction bookkeeping is one of the most vital parts of the business for many construction companies.

Accurate Bookkeeping: The Importance of Having Clean Books for Your Contracting Business

When You Become A Client – Then we can tap into our resources of knowledge and strategy banks. Guaranteed reliable construction bookkeeping and accounting services by Sage bookkeeping experts. By gaining a better handle on job costs across projects, the firm will be better informed when developing estimates in the future. Job cost reports from historical jobs will help identify material and labor cost trends, unanticipated costs and areas where jobs tend to go over budget. Estimators can incorporate these factors into their bids going forward. Make sure to invoice clients regularly or ask for payment upfront for expensive materials and labour.

For most businesses, the accounting general ledger (G/L) is all they need. This lets them track transactions that impact the whole company’s financial picture. However, because construction accounting is project-centered and production is de-centralized, contractors also need a way to track and report transactions specific to each job.

Complex costs from labor, transportation, equipment, materials and insurance all determine profitability. Giersch Group services help construction companies track individual expenses real estate bookkeeping and determine how they influence the company as a whole. It is a way to forecast a project’s costs by estimating things such as contractors, materials and supplies, and overhead.

What does accounting do in a construction company?

Construction accountants work in the construction industry to calculate and oversee all finances of a project. Their duties include planning construction projects' budgets, performing cost analyses, and reviewing purchase orders, invoices, and supplier contracts.